Range Resources Corporation Releases Q3 Results

RRC: the last of Range Resource’s natural gas transportation projects are coming on line

Q3 Stats

• Year to date 2017 GAAP net income was $112 million, or $0.45 per diluted share, compared to a net loss of $361 million, or $2.10 per share in the comparable period of 2016
• Year to date net cash provided from operating activities (GAAP) was $601 million, compared to $206 million in the comparable period of 2016, an improvement of 192% while year to date cash flow from operations before changes in working capital, (non-GAAP), reached $656 million, compared to $316 million, an improvement of 108%
• Two recently completed Marcellus super-rich pads were brought on line with average per well 24-hour IPs of 41.3 MMcfe/day, containing 64% liquids, with 20% being condensate
• Record Q3 production totaled 1.99 Bcfe/day, an increase of 32% compared to the prior-year quarter
• NGL pre-hedge realized prices improved to $16.93 per barrel versus $11.17 per barrel in the prior-year quarter, a 52% improvement
• Natural gas price differential including the impact of basis hedges improved to minus ($0.51) per Mcf, compared to minus ($0.68) in the prior-year quarter, a 25% improvement
• Crude oil and condensate realized prices improved to $4.80 per barrel below WTI versus $5.81 per barrel below WTI in the prior-year quarter, a 17% improvement

(Unaudited, in thousands, except per share data)

Appalachia division

Q3 2017 production averaged 1.60 net Bcfe/day, a 15% increase over the prior-year quarter. Southwest properties averaged 1.45 net Bcfe/day during Q3, an 18% increase over the prior-year quarter. Northeast properties averaged 153 net MMcf/day during Q3, a 9% decrease over the prior-year quarter. The Appalachia division brought on line 22 wells in Q3, 11 in the super-rich area, 10 in the wet area, and one in the southwest dry area.

Plans are underway to drill longer laterals to improve capital efficiency by lowering well costs per foot and increasing recoveries. Q3 average lateral lengths are over 11,700 feet, compare to Q3 2016’s average length of less than 6,171 feet. Range Resources plans to have average lateral lengths of 10,000 feet or greater in 2018. Range states that combining longer laterals and additional completion efficiencies will allow Range to lower total well costs on a normalized basis by 25% compared to the previous year.

One completed pad in the super-rich area had an average 24-hour IP per well of 41.7 MMcfe/day consisting of 16.2 MMcf of gas, 1,089 barrels of condensate, and 3,172 barrels of NGLs. Wells in this area were completed with an average lateral length of 9,478 feet with 48 stages.

North Louisiana division

Q3 2017 production in the North Louisiana division averaged 360 net MMcfe/day. Seven wells were brought on line during the quarter. Two Upper Red wells have 30 day rates to sales of 25.8 and 20.7 MMcfe/day, with lateral lengths of 7,427 and 6,827 feet. A Lower Deep Pink well on the same pad averaged 20.2 MMcfe/day to sales for 30 days.

A well was recently completed in a new fault block south of Terryville and north of Driscoll field. Early production data projects rates of over 3.5 MMcf/day, per 1,000 feet of lateral. Two offset horizontal wells to the east and west of Vernon field are planned with one well currently drilling.

Marketing and transportation

Several incremental natural gas transportation projects in southwest Appalachia are expected to commence operations in the next two quarters. Once in service, Marcellus natural gas volumes can be directed toward expanding markets, especially the Gulf Coast, where significant incremental natural gas demand is expected over the next several years.

TransCanada’s Rayne/Leach Xpress project and Enbridge’s TETCO Adair Southwest project are both expected to be in service before the end of 2017. Energy Transfer’s Rover Phase 2 project is expected to be available in early 2018. These projects will add an additional 900,000 MMbtu/day to Range’s gross capacity.

Earnings call Q&A

In the Range Resources Q3 earnings call Q&A, executives discussed operations in more detail:

Q: There are wells in the southwest Marcellus acreage that produce over 40 MMcfe/day with lateral lengths over 9,000 feet. Is there anything special about those wells, like the surfactant or fluid used?

Range Resources COO Ray Walker: We’ve continued to optimize our reservoir models, and we continue to look at things like targeting, cluster, perforation, cluster placement, the amount of proppant that we’re putting in there, fluid, and injection rates. The reservoir team up there and the completions team have about 30 different models that they’re working on at any one given time. We’ve incorporated big data analytics and we’re starting to look at a whole slew of different variables. What’s important is, taking that machine learning and then doing predictive analysis with it. We use that data to do things that weren’t necessarily apparent before.

Q: What can you tell us about the contemplated divestitures of northeast PA assets?

Range Resources VP of Investor Relations Laith Sando: We have active processes underway; we’re actively working on divesting in the mid-continent, as well as northeast PA. We have a lot of acreage in Pennsylvania, 900,000 surface acres in some of those stock pay areas. If somebody is willing to pay us what we think is a good value for something we’re not going to get to for a while, we consider that as well.

Q: If Range Resources experiences 10% corporate growth, what does that mean for the Terryville growth or the Louisiana growth?

Sando: This year, we allocated about two-thirds of our capital to PA and about a third to North Louisiana. We’re having good results in both areas but given the new pipes coming on, we’ll probably allocate capital to Marcellus. We will give you more details later this year, most likely, early next year, which is our typical timeframe for coming out with the budget.